Do you really think that a small country of 5 million can effectively compete against countries such as India (1.45 billion) and Pakistan (250 million)? The player pool is very small to start with. But the advantage for New Zealand is that they have a very effective schools and universities cricket setup. And also, their first-class setup is one of the best for any country, and can compete with the county cricket of England and Sheffied Shield of Australia. On top of that, they receive a steady stream of cricket players from South Africa, England and India.
If population is criteria then countries like Pakistan, India and Bangladesh will be winner in every sporting event they compete. There performance in Olympics is miserable, in recent summer Olympics these three countries were able to win only one gold medal while Uzbekistan with population of only 36 million was able to grab 8 gold medals. A country can excel in sports and other departments of life only if there is proper planning and decisions are made on merit not on nepotism.
New Zealand with population of 5 million is doing good only because of facts you highlighted. If they follow pattern of sub-continent then due to there small population they might down to level of an associate team.